Answer to Question #67418 in Macroeconomics for Jafrul

2017-04-13T06:55:44-0400

Question #67418

Suppose that the economy is at full-employment equilibrium.(a) Explain what the Keynesian multiplier effect is in macroeconomics. Using the Keynesiancross, explain mathematically why the Keynesian multiplier effect is greater than 1. (b) In the Keynesian cross, suppose that the consumption function is given by:C = 100 + 0.6 x (Y – T).Also suppose that the planned investment (I) is 50 and the government expenditure andtaxes are both 200. Assume that there is no international trade (both exports and importsare zero).(i) Calculate the equilibrium level of GDP (income). (ii) Calculate the equilibrium level of GDP (income) when the government decreases itsexpenditure from 200 to 150. (iii) Suppose that the government attempts to achieve an output (GDP) of 1,000. What levelof government expenditure is required?